The U.S. Food and Drug Administration (FDA) is increasingly approving drugs and medical devices based on limited evidence of safety and efficacy. This is a deliberate regulatory and policy choice, intended to get promising drugs and devices to market faster. In exchange for faster market access, manufacturers must typically commit to conduct postapproval studies on the safety and efficacy of their drugs and devices — commonly referred to as postmarketing or Phase IV studies. The tradeoff between ex ante certainty and continued testing ex post might make sense in theory. But in practice, it doesn’t work. Many manufacturers delay or never conduct these studies, and the FDA’s own data shows dismal completion rates. As a result, too many drugs and devices stay on the market despite unresolved safety and efficacy concerns.

The FDA has struggled to fix this problem, and with the current administration shifting away from regulatory enforcement, there is little reason to believe it will succeed now. We propose that payors should pick up the slack by using private contracts. Payors should mandate postmarket evidence of safety and efficacy for drugs and medical devices approved through accelerated pathways, linking continued payment to the completion of confirming studies. We consider why payors have not imposed such requirements to date and explain why the timing is right for private contracts to assume a more prominent role in addressing these problems. We also explore possible extensions of this contract-based approach for other healthcare products and services.